RAD Program Outline Lexington Housing Authority Lexington, NC

RAD Workshop OVERVIEW What is RAD? HUD demonstration program that combines public housing operating and capital subsidy into a Section 8 HAP contract What kinds of developments are being done with RAD? Minor rehab; major rehab; new construction; mixed income; off-site replacement housing How do I determine if I have a project/portfolio that would be a good candidate for RAD conversion? Use the RAD Inventory Assessment Tool in the Resources section of www.hud.gov/rad How would RAD affect: Residents: No change; 30% of income for rent PHA Functions: Dependent on cash flow, fees, strong management; puts them on the more secure Section 8 funding platform; Gives you the affordable housing tools of other nonprofit developers Resources: www.hud.gov/rad; www.radcapitalmarketplace.com; www.radresource.net

At closing, funding is converted to a Section 8 contract rent This is rad At closing, funding is converted to a Section 8 contract rent ACC Section 8

PUBLIC HOUSING CONVERSIONS Key Provisions Public Housing & Mod Rehab Convert at current funding only PBRA or PBV Cap of 60,000 units Choice-Mobility, with limited exemptions Extensive waiver authority to facilitate conversion First come, first served after close of initial competitive window (10/25/2012) All applications must be received by 9/30/2015

PUBLIC HOUSING CONVERSIONS RAD Contracts & Post-Conversion Terms Option of PBRA or PBV contracts Long-term renewable use & affordability restrictions Secretary shall offer & the owner shall accept renewal of the contract Public or non-profit ownership or control, except after foreclosure, etc., or to facilitate tax credits Transfer of assistance to replacement units Public Housing Section 18 Demo/Dispo application not needed for conversion of substantially all units Requirements for assistance established through contracts, use agreements, regulations, etc. Waiver authority for PBV, PBRA, Operating Fund, Capital Fund Evaluation

PUBLIC HOUSING CONVERSIONS Resident Provisions No Re-Screening of Residents at Conversion One-for-One Replacement Must convert all or substantially all units in covered project Family Self Sufficiency Current FSS participants continue in program Resident Participation & Funding PHA must recognize legitimate tenant organizations PHA must provide $25 per occupied unit annually for resident participation ($15 per occupied unit > legitimate tenant organization Resident Procedural Rights Consistent with Section 6 of the 1937 Housing Act Resident Relocation Consistent with Uniform Relocation Act

Quantifying Rehabilitation Needs For RAD application, use best available information on rehab needs, 5 year PNA, etc. Within 60 days of Commitment to enter into a Housing Assistance Payments Contract (“CHAP”), contract with a qualified Physical Conditions Assessment (“PCA”) contractor and file the completed PCA with HUD. PCA components: Compares traditional and green rehab; (Forensic research for buildings > 30 yrs. Old Energy audit Integrated Pest Management (IPM) Inspection RPCA guidance on Hud.gov/rad Not required for demolition and new construction

LEXINGTON RAD STATUS

Lexington RAD Development Status October 26, 2012 – RAD Applications Submitted for Southside Village (130 Dwelling Units) and Terrace Lane (Eastview – 100 Units and Helen Caple – 38 Units) December 14, 2012 – RAD Commitments Issued January 25, 2013 – Bond Applications submitted to North Carolina Housing Finance Agency August 31, 2013 – Bond Allocations Issued By NCHFA November 15, 2013 – Projected Closing Date

Development Sources and Uses Sources Permanent Mortgage $12,438,687 LHA Purchase Money Financing $ 3,800,000 LHA Capital Investment $ 900,000 Tax Credit Equity $ 7,509,011 Interim Income $ 1,906,889 Total Sources $26,910,469 Uses Acquisition $ 3,819,540 Construction $15,571,494 Bond & Soft Costs $ 6,757,205 Funded Reserves $ 762,230 Total Uses $26,910,469

Analysis of Lexington Properties

Comparison of RAD to “Business as Usual” Business as Usual (Per Unit) 20 Year Capital Funds (discounted to present value) $14,621 20 Year Cashflow $ 755 Total Sources for Capital Improvements $15,376 Conversion to RAD Supportable Debt (based on 2012 RAD Rents**) $46,413 4%/Bonds Low-Income Housing Tax Credit Equity $28,010 Contributions to Reserves ($250/year X 20 years) $ 5,000 Cashflow $ 15,782 Total Sources for Capital Improvements $95,205 Ratio of RAD to Business as Usual: 6 Times Highly Beneficial for Projects/Residents

Meeting Capital Needs Requirements Debt and Equity Supportable (Sources) Supportable Debt (per unit) $18,578 4%/Bonds Low-Income Housing Tax Credit Equity $16,523 Initial Sources for Capital Improvements $35,101 Available for Hard Costs (estimated at 70%) $24,571 Less Pay-off of CFFP and EPC Debts - $ 2,795 10-year Capital Needs with Contingency (10%) - $10,159 Surplus: (increase upgrades/pay purchase to LHA) $11,617 Conclusion: Conversion is Feasible & Desirable at Project Level

Agency Level Considerations Staffing Central Office Cost Center—Impacted by New Approach to Housing, depending on the percentage of portfolio being converted Property Management Staff & Tax Credit Experience Possible Shift of Focus from Management/Maintenance to Development of New Products Continuation of Resident Services Programs (FSS, Homeownership, CSS, Etc.) Use of Reserves, Capital Funds if Converting Entire Portfolio Changes to Accounting Systems

Internal considerations Each development stands on its own PHAs have the tools of other affordable housing developers Property Managers can be empowered to manage their own operating budgets with their own replacement reserves Significantly more private leverage Properly structured projects generate unrestricted cash from cash flow, developer fees and loan payments Funding is more predictable RAD units: Require no Annual Plan Are not in PIC Staff follow one set of requirements – either PBV or PBRA Site based waiting lists

Considerations for operations Managing Operating Expenses Lower, post-rehab Will have separate replacement reserves per project Compare to other local, nonprofit operated affordable housing Powerful impact on the ability to leverage Compare RAD rents to revised opex: If opex are 60% or less of rents, significantly increases feasibility Retaining real estate tax PILOT arrangements Section 8 rent includes utilities; incentives to PHAs to reduce utilities by incorporating green measures

Comparison of PHA fees ACC vs RAD Assume a 100 unit project, new const, $120K/unit   Per unit per month Current ACC RAD Property Mgmt Fee $ 45.00 $ 45.00 Bookkeeping $ 7.50 $ 7.50 IT $ 2.00 $ - Asset Mgmt Fee $ 10.00 Capital Fund Fee $ 15.00 Cash Flow $ 20.00 Monthly $ 79.50 $ 72.50 Annual $ 95,400.00 $ 87,000.00 Annual difference $ (8,400.00) 15 year difference $ (126,000.00) Developer Fee (25% of 15% of $12M) $ 450,000.00 Payment on PHA financing ($25k annually) $ 375,000.00 $ 825,000.00 Net unrestricted funds to the PHA over 15 years $ 699,000.00

RELOCATION CONSIDERATIONS Unlike Section 18 demo/dispo, no additional new Section 8 vouchers are available with RAD Must be done in compliance with URA RAD HAP contract funds at construction closing Residents cannot be involuntarily permanently dislocated The cost of temporary relocation factored into the development budget Partially offset by funding of Section 8 rents during construction

CHOOSING THE TYPE OF SECTION 8 PBRA Provided to owners by HUD’s Office of Housing via a HAP (Part of HUD Multifamily) Projects monitored by PBCA’s; No administrative fee to PHAs 20 years Subject to annual appropriations, but strong history of full funding PBV Component of PHA’s Housing Choice Voucher Program in which the PHA attaches a voucher to specific units via a HAP (Part of HUD Public Housing) Voucher funding administered by PHA; PHA can earn administrative fee 15 years (up to 20 with approval) Subject to annual appropriations but with a history of funding reductions